Each year, natural disasters (also referred to as tropical cyclones (e.g. hurricanes, typhoons, tropical storms), earthquake, inundation, volcanic eruptions, and seismic sea waves etc.) cause severe damage in various parts of the world. The occurrence of most of such disaster events is difficult, if not impossible, to predict over the long term. Even the exact position of an excursion point for temporally close events (or the exact track of moving events as e.g. occurring cyclones) are mostly difficult to predict over a period of hours or days. In 2008, natural catastrophes claimed 234 800 human lives worldwide and caused total losses of approximately USD 259 bn. However, only a fraction of total losses caused by natural catastrophes is covered by insurance (USD 44.7 bn in 2008), since for many large loss potentials the un-insured portion is significant—even in developed insurance markets. Much of the funding shortfall is absorbed by the public sector, including (i) Paying for emergency expenses (shelter, emergency services, critical supplies etc.), (ii) Paying for reconstruction for critical assets/infrastructure, (iii) Offering tax incentives to restart the economy. However, these critical actions raise deficits and a dilemma for governments: how should these emergency costs be financed? Possibilities are through budget resources, taking away from other needs, through internal fiscal measures (i.e., higher taxes), through external fiscal measures (i.e., new municipal debt). It is obvious, that for natural disaster events with huge impact all these measures come along with new problems.
Therefore, due to this massive gap between economic and insured losses, there is a great need for new risk transfer solutions. Using parametric risk transfer systems, this could provide a solution for the problem. Parametric insurance uses transparent triggers to deliver large non-reimbursable funds to the buyer. The advantages are that the speedy delivery of funds provide liquidity and capital, the fixed premium allows for budgeting certainty, the contracts may be multi-year, aiding legislative process, and unlike debt have no payback and no negative impact on credit. It is also important, that parametric covers can be tailor-made to the needs of the state government.
In particular, the given examples in this document address specifically tropical cyclones and earthquakes, since these types of natural disasters create the biggest damage to humans and properties each year. Hurricanes is the most severe category of the meteorological phenomenon known as the “tropical cyclone.” Hurricanes, as all tropical cyclones, include a pre-existing weather disturbance, warm tropical oceans, moisture, and relatively light winds aloft. If the right conditions persist long enough, they can combine to produce the violent winds, incredible waves, torrential rains, and floods we associate with this phenomenon. So, the formation of a tropical cyclone and its growth into e.g. a hurricane requires: 1) a pre-existing weather disturbance; 2) ocean temperatures at least 26° C. to a depth of about 45 m; and 3) winds that are relatively light throughout the depth of the atmosphere (low wind shear). Typically, tropical storms and hurricanes weaken when their sources of heat and moisture are cut off (such as happens when they move over land) or when they encounter strong wind shear. However, a weakening hurricane can reintensify if it moves into a more favorable region. The remnants of a land falling hurricane can still cause considerable damage. Each year, an average of ten tropical storms develop over the Atlantic Ocean, Caribbean Sea, and Gulf of Mexico. Many of these remain over the ocean. Six of these storms become hurricanes each year. In an average 3-year period, roughly five hurricanes strike e.g. the United States coastline, killing approximately 50 to 100 people anywhere from Texas to Maine. Of these, two are typically major hurricanes (winds greater than 110 mph). The intensity of tropical cyclones are typically relative terms, because lower category storms can sometimes inflict greater damage than higher category storms, depending on where they strike, what other weather features they interact with, the particular hazards they bring, and how slowly they move. In fact, tropical storms can also produce significant damage and loss of life, mainly due to flooding. Normally, when the winds from these storms reach 34 kt, the cyclone is given a name. In the state of the art, different systems can be found to forecast tropical cyclone winds. One possibility is shown by M. Demaria in “Estimating Probabilities of Tropical Cyclone Surface Winds” (X-002297474 EPO) or by M. Demaria and J. Kaplan in An Updated Statistical Hurricane Intensity Prediction Scheme (SHIPS) for Atlantic and Eastern North Pacific Basins” (XP-008035846). Both systems describe Monte Carlo generation of cyclone paths and intensities resulting in probabilities of occurrence of a specific wind strength for a given location and time.
Similar to cyclone forecast systems, earthquake forecast systems or earthquake impact forecast systems should be systems capable of generating prediction that an earthquake of a specific magnitude will occur in a particular place at a particular time (or ranges thereof) and which damage it will cause to what kind of objects, respectively. An earthquake is the vibration of the earth's surface (including the ocean bottom) that follows a sudden release of seismic strain energy within the earth's crust that has built up over time. This release of strain energy is typically generated by the displacement of large rock masses along a fracture within the earth (“fault”). For a bigger earthquake, there is a greater amount of energy release and hence a larger rupture of the fault. The ground shaking at a particular site depends on the size of the earthquake, the distance from the source of the earthquake and the local soil conditions at the site. Earthquakes can result in extensive loss of life, shaking damage to buildings and their contents, interruption of business, landslides, liquefaction and ignition of large fires. MMI Intensity Measure is a twelve-degree scale that describes in general terms the effects of an earthquake at a specific location. The lower degrees of the scale generally deal with the manner in which the earthquake is felt by people. The higher degrees of the scale are based on observed structural damage and ground failure. For purposes of this transaction, only MMI degree VII and larger are used, which can be generally described as very strong (VII), destructive (VIII), ruinous (IX), disastrous (X), very disastrous (XI) and catastrophic (XII). For purposes of this transaction, MMI is calculated from Spectral Acceleration and PGV using published empirical relationships.
Despite all improvements the last years in the state of the art systems, scientifically reproducible predictions are difficult to make and cannot yet be made to a specific hour, day, or month. Only for well-understood geological faults, seismic hazard assessment maps can estimate the probability that an earthquake of a given size will affect a given location over a certain number of years and what kind of damage it can cause to different structured objects at that location. Once an earthquake has already begun, there are early warning devices in the state of the art which can provide a few seconds' warning before major shaking arrives at a given location. This technology takes advantage of the different speeds of propagation of the various types of vibrations produced. Aftershocks are also likely after a major quake, and are commonly planned for in earthquake disaster response protocols. Therefore, experts do advise general earthquake preparedness, especially in areas known to experience frequent or large quakes, to prevent injury, death, and property damage if a quake occurs with or without warning. It is necessary to predict the impact of an occurring earthquake or a possible earthquake to the objects placed at the location or humans, living in the region. In case of occurring earthquakes, alarm systems and damage repair systems need to be activated and controlled by means of appropriate signal transmission. In case of possible earthquake, the forecast is needed to have a proper preparedness. In the state of the art, the systems use so called earthquake impact (or damage) index to quantitatively approximate the impact or damage caused by an earthquake to pre-defined populations or objects associated with different geographical locations, e.g. damages relating to buildings, bridges, highways, power lines, communication lines, manufacturing plants or power plants, and even non-physical values, e.g. business interruption, contingent business interruption values or exposed population, based solely on physically measured and publicly available parameters of the earthquake phenomenon itself. The impact parameters as a part of the signal generation of the forecast system can then be used to electronically generate appropriate alarm or activation signals, which can be transmitted to correlated modules and alarm devices. As further example may serve the patent documents JP60014316, GR1003604, GR96100433, CN1547044, JP2008165327, JP2008077299, US 2009/0164256 or US 2009/0177500. Nevertheless, in the state of the art, efficient earthquake damage prediction and prevention systems are technically difficult to realize. They can comprise e.g. earthquake detection units or method together with units to generate propagation values of the earthquake's hypocenter or epicenter. Even within an epicenter region it is often difficult to properly weigh the local impact and impact values, respectively, due to different geological formations, gating of the affected object to the ground and internal structure and assembly of the affected object. However, quickly knowing the impact of the earthquake to affected objects within a region can be important to generate and transmit correct activation signals or alarm signals to e.g. automated emergency devices or damage intervention devices or systems and/or general operating malfunction intervention devices, as for instance, monitoring devices, alarm devices or systems for direct technical intervention at the affected object. Furthermore, earthquake damage prediction and prevention systems of the state of the art are not very reliable and often to slow. One of the problems of the state of the art is, that the signals of the systems can hardly be correctly weighed, due to the law of large numbers i.e. of low statistic in the field of earthquakes in connection with a specific geological formation. Finally, those systems of the state of the art are expensive to realize and extremely costly in terms of labor.